Division of Business and Management United International College (UIC) FIN4040 Financial Systems and MarketsSemester 1/2012 Individual Assignment #2 Systemic Risks and Industry Participants Background Following Individual Assignment #1 that emphasizes a link between financial-market participants and systematic risksas well as how they have utilized all sorts of financial intelligence and technology to deal with them, this assignmentfocuses on another set of interrelations between financial-industry participants (e. . , banks and financial services) andsystemic risks together with the uses of financial regulation and governance mechanisms to cope with those exposures. Financial industries, described functionally as financial intermediaries and organizationally as financial institutions, areboth benefactors and beneficiaries in a financial system in terms of value-added products or services they have provided.
However, not only are they exposed to systematic risks just like other market participants have been, but their fiduciaryfunctions and agency-type organizations are also prone to idiosyncratic risks engendered by informational asymmetries(non-transparent adverse selection and non-disclosed moral hazard), making it more crucial for them to be scrutinizedby the markets or monitored by their governors (e. g. , regulators, supervisors, overseers, public insurers).
Idiosyncraticrisks originated by one of the industry participants could inadvertently lead to extensive or protracted systemic risks thatexacerbates the existing systematic risks and destabilizes the whole financial system. Such interwoven economic-financial-business (EFB) cycles that all financial systems experience and encounter remainthe recurring challenges to be dealt with by industry and regulatory practitioners alike. This assignment is yet anotherimportant issue toward which financial-economic students like us should be observant and offer our intelligent opinions.
Requirements Based upon the above background information and additional library-research and/or Internet-survey works, you arerequired to perform the following tasks:1. Continue with the financial system which you have selected for your Individual Assignment #1 and look particularlyinto its financial industries and their specific functional or organizational practices in dealing with financial regulation. 2. Identify and describe ALL types of systemic-risk factors with which industry participants in your chosen financialsystem have dealt in their regulatory-arbitrage processes, e. . , commercial-banking participants and their offshoreactivities vs. capital-control limits, consumer-banking participants and their smart products vs. product transparency,investment-banking participants and their M&A or VC deal-makings vs. disclosure requirements, personal-bankingparticipants and their wealth-management services vs. anti-money-laundering measures, bancassurance participantsand their cross-selling activities vs. price transparency, and shadow-banking participants and their off-balance-sheetactivities vs. risk-based regulatory capital adequacy. . Choose only one type of financial industries from your chosen financial system and analytically propose how aparticular group of industry participants therein SHOULD approach and deal with all relevant risk factors in order tobetter measure, manage, and master their systemic exposures. Your proposed approach could be either 1) to keepthe financial industry’s existing structure but change any process therein as appropriate, or 2) to change the existingfinancial-industry structure partially or wholly with the appropriate corresponding processes.
Your proposed methodsfor industry participants to deal with systemic risks shall naturally follow your recommended approach. 4. Critically synthesize your proposals by recognizing that regulating, supervising, and overseeing financial industries(“financial governance”) at either individual or group level would variably affect the degree of industrial effectiveness. Systemic risks are more pervasive when a financial industry is less effective.
Your extensive and intensive knowledgeabout those risks and their relationships with your chosen financial industry shall help you DESIGN resilient financial-industry structures (“financial stratagem”) or DEVISE sustainable financial-industry processes (“financial innovation”). 5. Write your individual report outlining, detailing, analyzing, and synthesizing the above items in their sequential order. Please ascertain that you are the only person who authors your report and not somebody else. The quality of yourwritten English, though deemed important, is secondary to the quality of your thought process.
Perfect orinconsistent English could be an indication of plagiarism and there WILL be negative consequences you have to bear. 6. There is no lower limit on the number of pages in your report, but its upper limit is NOT to exceed 10 pages using a12-point Times New Roman font and a 1. 5 line spacing, excluding tables, charts, appendices, citations, or references. Collaboration You are allowed to collaborate with one or more students in your class in terms of library-research and/or Internet-survey works prior to writing your own individual report.
This is to help you save your information-search time whileenhancing your analytical and critical thinking processes to concisely derive strategic conclusions and recommendations. Submission The deadline for you to submit your Individual Assignment #2 is Friday December 14, 2012 . You must hand inyour report to the teaching assistant of this course for acknowledgement on or before that deadline date. Failure to doso shall result in your zero mark on this assignment. Your inquiry should be made directly to the lecturer of this cours